The big real estate news story yesterday was that U.S. home sales were unexpectedly down 10% in December versus the previous December.

The report from the National Association of Realtors was picked up by Marketwatch, Bloomberg, CNBC, Reuters, Washington Post, and others.



Here’s a longer view of the NAR estimates.


It looks like the trend changed in the back half of 2018. It’s a visible change in trend.

By Region

Existing Home Sales – December 2017 to December 2018

  • U.S. – Down 10%
  • Northeast – Down 7%
  • Midwest – Down 11%
  • South – Down 9%
  • West – Down 15%

December is one of the slowest months for home sales but the 15% fall in home sales in the Western states is quite large.

Next Few Months

Sales were particularly strong in the first few months of 2018 so we’re likely to see strong declines year-over-year for the next few months.

What will a few more months of negative news on home sales do to consumer expectations? To some degree, it will make some buyers more cautious which equals lower demand, to some degree.



Home prices were up 2.9% in December versus the previous December. I see a pretty clear downward trend in price gains.


The supply, or inventory, of homes for sale was at a 3.7-month supply at the current sales pace, up from 3.2 months a year ago.

I consider 4 to 6 months to be a balanced supply so if this trend continues, sometime in 2019 the U.S. could have a balanced market (and only small home price increases) for the first time in around 5 years.

NAR Quote

Lawrence Yun, NAR’s chief economist, says current housing numbers are partly a result of higher interest rates during much of 2018. “The housing market is obviously very sensitive to mortgage rates. Softer sales in December reflected consumer search processes and contract signing activity in previous months when mortgage rates were higher than today. Now, with mortgage rates lower, some revival in home sales is expected going into spring.”

NAR Press Release

So let’s look at mortgage rates.


Original, full-size, interactive version

In mid-November rates hit 4.94% but are now down to 4.45%. That’s a significant decline. Rates are now back to where they were last spring. But don’t expect the market to be as strong as last spring even if mortgage rates stay the same.

Homes sales are probably more sensitive to rate increases now – near the top of the real estate cycle – than they would have been a few/several years ago when employment and the economy were growing rapidly and had a lot of room to run on the upside.

Other Factors

Pent-Up Demand Satisfied

I haven’t read this anywhere but I suspect an important factor is pent-up demand from the Great Recession has been largely satisfied.

A lot of Millennials became adults right at the height of the Great Recession and during the early years of the slow recovery. It’s taken them longer to get established economically than previous generations. They wanted to buy homes but they couldn’t so their demand to buy their first homes kept building up.

My current working theory is much, or most, of that pent-up demand that was building up during the Great Recession and slow recovery, has now been satisfied. They’ve already bought their first homes. To some degree, demand is falling because most of the backlog of pent-up demand created by the Great Recession is gone.

High Prices

The other factor that the industry and press usually downplay because it might scare off home buyers is that home prices are high. When you started seeing stories that (nominal) home prices were topping the peak prices in the Great Real Estate Bubble, that might have been a clue that prices were high.

And, of course, all other things being equal, the quantity demanded is going to be a lot less at 2019 prices than at 2012 prices.

As upward momentum fades, sales (and then prices) will become a lot more sensitive to interest rate increases or any negative economic headwinds at all.

Full-size, interactive version